The Securities and Exchange Board of India (SEBI) has extended the deadline for implementing its new regulations on retail investors’ participation in algorithmic (algo) trading. The rules, initially set to come into effect from April 1, 2025, will now be implemented from August 1, 2025. This regulatory move marks a significant step in formalising retail algo trading and aligns with SEBI’s broader goal of strengthening market integrity through better supervision and transparency.
What is Algorithmic trading?
It also known as algo trading or automated trading. It utilizes computer programs to execute trades in financial markets. These algorithms are designed to execute trades at specific times and frequencies. The core function of algo trading is to leverage computer programming and financial markets to execute trades at precise moments.
SEBI Rules: Background & Objective
- SEBI introduced the framework on February 4, 2025, to bring regulatory clarity and structure to retail algo trading.
- The aim is to ensure responsible access for retail investors while enhancing market transparency, order tracking, and overall liquidity.
Key Features of the Framework
- Three-party model: Stock Exchanges, Brokers (as principals), and Algo Providers (as agents).
- Unique Identifier: All algo orders will carry a unique tag assigned by the stock exchanges for monitoring and traceability.
- Algo Provider Registration: Stock exchanges will be responsible for registering algo providers.
- Retail Investors Using Own Algos: Must register their algorithms if they exceed a specified order threshold. They can allow usage only by immediate family members.
Reason for Extension
- Stock exchanges requested more time to finalise implementation standards in consultation with the Brokers’ Industry Standards Forum (ISF).
- SEBI accepted the request and issued a circular highlighting the extension.
Implementation Directions
Exchanges must:
- Amend by-laws, rules, and systems in line with SEBI’s framework.
- Disseminate the provisions of the circular to all brokers and upload them on their websites.